8/29/2008 @ 2:00AM

Booby Prize

Putnam’s Fund for Growth & Income was once a $40 billion juggernaut. In recent years it’s been more of a laughingstock.

Putnam Investments classifies its fund for Growth & Income as following a “value” style. Given that the fund has underperformed its peers each year for nine straight years, it might be time to invent a new “devalue” category.

For such sustained bungling, among other sins, Putnam G&I wins this year’s Booby Prize. Its 23% decline over the past year puts it soundly in the bottom 10% of the funds in its large-company value group over the past one, three and five years.

In a textbook case of zigging when it should have zagged, the fund got caught with large holdings of Bear Stearns,
Countrywide Financial
,
Bank of America
and
Citigroup
as financials went into a tailspin in the second half of last year. Then, to right the ship, portfolio manager Eric Harthun bulked up on energy (its largest holding is
ExxonMobil
), just in time for that sector’s recent decline.

To own this perennial loser, Putnam charges investors in the A class of shares a 5.75% upfront load (less for those willing to commit more than $50,000). Annual expenses are 0.92% of assets. That’s a hefty fee for a fund whose ten largest holdings have a 40% overlap with those of the passively managed Vanguard Value Index Fund (expenses: 0.2%).

To be fair, Harthun, 43, inherited a mess when he was promoted to manage the fund in November of last year. “Structural and organizational changes in Putnam’s investment division should contribute” to improved performance, Putnam says in a written statement.

About the only good news: Assets are down 80% from their 1999 peak to a recent $8 billion, meaning this dud is doing less damage on Wall Street than it used to.